BEIJING (Reuters) - Western media have exaggerated the landslides and deterioration in water quality that followed the start-up of China's $25 billion Three Gorges dam, a senior government official said on Thursday.

"I was surprised when I read overseas reports of possible environmental catastrophes caused by the project," said Li Yong-an, deputy director of the Three Gorges Project Construction Committee.

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Li, also president of the state-run corporation responsible for hydropower development along the Yangtze river, said the world's largest hydropower project had in fact curbed the floods that used to displace thousands of people almost once a decade.

"Landslides also often happened before the construction of the dam," said Li, adding that one such incident in 1985 blocked shipping along China's biggest river.

Li said China had spent 10 billion yuan ($1.33 billion) to prevent landslides and would take further steps before lifting the water level in the reservoir to a maximum 175 meters (575 feet).

He told reporters on the sidelines of a Communist Party meeting that water quality in the river was closely monitored and so far there had been no sign of deterioration.

The state-run Xinhua news agency said last week that at least 4 million more people would be relocated from the reservoir area over the next 10 to 15 years to protect its "ecological safety."

The dam near the southwestern city of Chongqing, whose construction flooded 116 towns and hundreds of cultural sites and displaced 1.4 million people, is a work in progress.

However, state media have said it could be completed by the end of 2008, just after the Beijing Olympic Games.

Environmentalists have long criticized the project, saying silt trapped behind the dam is causing erosion and warned that the dam's reservoir will turn into a cesspool of raw sewage and industrial chemicals backing onto Chongqing.

Li acknowledged environmental concerns over the project, but emphasized that the problems were outweighed by benefits.

"The Three Gorges is actually improving environment and living conditions in downstream areas," he said.

He said a flood in the Yangtze in 1998 caused direct economic losses of more than 2,000 billion yuan ($26.6 billion at today's exchange rate), more than the $25 billion cost of the project.

"Protecting people from floods in a river that happen almost once every decade is a great achievement," he said.

Li said that at full capacity the hydropower plant would be able to produce 100 billion kilowatt hours, equal to burning 50 million tons of coal, a huge contribution to cutting carbon emissions that cause global warming.

However, scientists have warned that reservoirs can also worsen global warming by emitting a powerful green gas-methane, which is produced by plants and animals rotting underwater and released when that water rushes through hydropower turbines.